Greg Rushford criticizes Japan’s pursuit of preferential trade in the WSJ:

Japan’s FTAs (like those of Americans and Europeans) talk free trade but practice protectionism. All of Tokyo’s trade bilaterals exclude Japanese rice, where tariffs remain in the stratosphere… The WTO’s Doha Round with its pressures for genuine market opening are conveniently ignored.

The FTA between Japan and Indonesia runs to 938 pages containing rules of origin, exclusions for politically sensitive products, and protectionist specifications for 40% of local content on “sensitive” — read, politically sensitive — products. There are special rules and various product exclusions for vegetables, sugar, various dairy products, fruits, tobacco and much else. Japan won’t cut tariffs for any kind of pineapples from Malaysia, Brunei or Singapore, but will gradually reduce duties for some fresh and dried pineapples from Thailand and the Philippines. But while tariffs on Thai dried pineapples are at 6% in the first year, and will be phased out entirely in six years, the Philippines’ dried pineapples will be taxed at 7.2% at first, and won’t be duty free until year 11.

This is special-interest politics, not sound economics. The Japanese boast that their FTAs give them preferential access to oil from Brunei, natural gas from Indonesia, and export platforms for Japanese manufacturers in smaller Asian economies. To readers of a certain age, this has a familiar ring.

While it’s premature to hit the panic button, it’s sure time to sound the alarms. It’s simply wrong for the world’s leading economies to act as if they want Fortresses Asia, Europe and America. It’s truly a cause for concern that while the WTO’s Doha Round gets lip service, FTAs get done.

Marcus Noland says that the Middle East is a “demographic time-bomb” due to add 150 million people over the next decade or so. It needs faster job growth to keep up and prevent an “employment crisis” (pdf). Unfortunately, US trade policy is doing little to help:

The third component could be preferential trade agreements… [but] the way that the United States has been negotiating these agreements is effectively creating a “hub-and-spoke” system in which individual Arab governments have strong bilateral agreements with the United States but weak or nonexistent agreements among themselves. In part this reflects differences in both capacity and orientation across the Arab governments, and in the specific cases of the militarily vulnerable Gulf oil exporters, a particular interest in deepening ties with a strategic partner. If it were just an issue of variable speed geometry to borrow a European phrase, that would be one thing. The bilateral agreements themselves contain mutual inconsistencies, however, which make incorporating them into a single region-wide accord difficult. The problem is exacerbated by the fact that the rules in the agreements the United States and the European Union reach with the Arab countries are inconsistent. It would be desirable to increase the internal consistency of these arrangements to facilitate integrating them in the future.

For more thoughts on this subject, see Against MEFTA.

More research says AGOA had a strong positive impact:

While imports in the key product categories covered by AGOA (apparel, and a large number of agricultural and manufactured products) increased 94% in the post-AGOA period, we are able to discern that the portion of this increase actually caused by AGOA was much smaller – closer to 34%…

We moreover find that the increase in U.S. imports was not the result of a decrease in European imports. In fact, for manufactured products the Act even appears to have led to an increase in imports into Europe for the AGOA products. While this could be related to a number of factors, it certainly is consistent with the presence of fixed costs to exporting…

Eliminating trade restrictions on apparel products that initially faced a 20-25% tariff caused a four times larger import response than eliminating tariffs in the 10-15% range. It suggests that prior to the Act these tariffs had been quite effective in keeping out imports…

Overall, AGOA resulted in an 8.0% increase in non-oil exports from AGOA countries to the U.S…

the other limitations frequently cited in the African context – poor infrastructure, distorted product and credit markets, high risk, inadequate social capital, and poor public services – did not turn out to be binding constraints to expanding exports under AGOA.

Enga Kameni writes:

On a recent visit to Cameroon, I tried, albeit unfailingly, to keep track of the CEMAC (Central African Monetary and Economic Community) EU EPA negotiation. It is been rumoured that Central African Region is one of the EPA configurations making greater strides towards the conclusion of EPAs (spare me for using the word rumour, I can say with certainty that CEMAC EU EPA negotiations is the most non-transparent of all the configurations)…

I have on many occasions opined that EPA, if properly managed and sequenced would, in the long run be beneficial to ACP countries. However, the rate at which the negotiations are unfolding in the CEMAC configuration is a cause for concern.

Bessma Momani offers a plethora of arguments, some compelling and some not, against a Middle East Free Trade Area (MEFTA) in the latest edition of The World Economy:

The US government has often cited the US-Jordanian Free Trade Agreement as a guide for other Middle East states to follow. The MEFTA plan could backfire, however, as structural barriers have limited past attempts to spur intra-regional economic cooperation and trade. A hub-and-spoke relationship results in minimal economic benefit accruing to the Middle East and in minimal intended political benefits to the United States…

Intra-regional economic cooperation and trade… continues to be limited because of four interrelated factors that are chiefly structural.

First, Middle East countries in their respective subregions have similar resources and production structures; accordingly, each country has a low comparative advantage with its neighbour (Fawzy, 2003)… Second, each Middle East economy is relatively small and unable to provide economies of scale in production (Hoekman and Messerlin, 2002, p. 13). There is a significant amount of state-ownership in the region, spurring inefficient and protected industries that further limit the successful adoption of an export strategy… Third, there is a wide disparity of income among Middle East countries; therefore, states have different consumption patterns and production strategies (Hoekman and Messerlin, 2002, p. 13)… Fourth, the Middle East is characterised by a high degree of both tariff and non-tariff barriers… it is most likely that in, the short term, Arab economies will continue to be inward-looking and relatively isolationist…

It is argued that a US plan for a MEFTA will become a hub-and-spoke relationship, due to the structural impediments to economic cooperation in the Middle East. The United States, as the hub, will export higher value-added manufactured goods and services; Middle East countries, as the spokes, will export unprocessed primary goods to the United States. The negative economic implications of a hub-and-spoke relationship on Middle Eastern states are numerous. A hub-and-spoke MEFTA could potentially divert foreign investment away from the Middle East, as investors would prefer to set up manufacturing or service facilities in the United States and get duty-free access to all of the Middle East spokes. Again the lack of trade complementarity in the Middle East will exacerbate this. Companies will see little advantage to setting up facilities in the Middle East, where intra-regional trade is already low. Intra-regional economic cooperation will slow further under a MEFTA. Moreover, American businesses will be deterred from setting up manufacturing facilities in the Middle East as conflict continues in the region…

As the United States continues to negotiate each FTA bilaterally on its own terms and preferences, Middle East countries will have little say in what each new trading partner brings to the negotiation table. New trading partners will either have better access to the US market or new partners will undermine workers’ conditions and environmental standards. Consequently, a hub-and-spoke MEFTA will result in Middle Eastern countries involved in a race to the bottom, where each country will continue to lower wages, erode labour rights and soften commercial regulations to attract American investment away from other signatories…

The current structural impediments to intra-regional economic cooperation, however, will inhibit the prospects of an integrated Middle East economic system. Middle East economies do not complement one another to build an effective economic bloc on their own. Moreover, Middle East socio-political systems are predicated on remaining relatively isolationist and inward-looking. Middle Eastern states have little comparative advantage to increase economic cooperation; therefore, a MEFTA will create a hub-and-spoke relationship. Consequently, we will see Middle Eastern states acceding to the United States for purposes of keeping strong economic ties.

Tamura Akihiko says Japan is now an “extrovert” in trade policy:

So what is Japan’s proposal and what makes it so special? The goal of CEPEA [Comprehensive Economic Partnership in East Asia] is to create an efficient, mature market-economy area encompassing the 10 member states of Asean, plus Japan, China and South Korea, as well as India, Australia and New Zealand. Or, put another way, the agreement would mirror the current membership of the EAS.

According to Japan’s blueprint, the agreement would, as its name suggests, be a “comprehensive” one both in terms of the sectors covered (trade in manufactured goods, services, investment, etc.) and – perhaps more noteworthy – in terms of how Japan defines its potential FTA/EPA partners. Notably, the decision to include India marks a new departure for Japan into relatively uncharted territory, as Japan looks to include countries that – even though they may not currently constitute a close fit for economic integration – nonetheless display strong signs of evolving into important economic partners in the future…

To uncover the true significance of the plan, we need to compare and contrast the sentiments expressed in CEPEA with the traditional stance that Japan has taken with regard to global economic activities. CEPEA is premised on a different paradigm from previous economic arrangements in the region. Up to now, regionalism in East Asia was driven by nations’ responses to perceived threats from other trade blocs such as the European Union and the North American Free Trade Agreement. As such, trade agreements have tended to be both reactive and exclusive. But CEPEA is different in that its goal is not just to set up a regional trade bloc. Instead, it’s my view that CEPEA is outward-looking in nature and this inherent characteristic will result in spurring other countries – or even regions – to pursue proactively economic integration with East Asia…

I would like to take particular note of this spirit embedded in CEPEA – one which is not discernable in any other bilateral FTA/EPAs engaged by Japan to date – and call it “extrovert regionalism.” This “extrovert” trajectory per se is particularly crucial for Japan – much more than individual trade agreements – because it is this spirit that could tremendously affect the dynamism of the Japanese economy.

Do read the full piece.

Richard Pomfret assesses Asian regionalism:

Since the turn of the century, attention has turned east as over 70 RTAs have been signed by East Asian countries. This is striking because during earlier post-1947 waves of RTAs the only serious Asian agreement was ASEAN and this had little impact on trade. China, Japan, Korea, Mongolia and Taiwan stood out as practically the only countries showing complete respect for the MFN principle…

Asian regionalism is posing challenges to international relations, but what is its economic basis and likely economic impact?…

In sum, the pattern for China, as for East Asia in general, in the first half of the 2000s was one of talking regionally but acting bilaterally…

Although regionalism may be viewed as an alternative to multilateralism, in the East Asian context there may be little conflict between the two, at least in their economic consequences. Duty payments on intra-Asian trade tend to be low as a result of trade liberalisation and of the prevalence of duty-drawback systems in response to the production fragmentation and networks which emerged over the last two decades. To the extent that the new RTAs include discriminatory tariffs, as in the China-ASEAN FTA, they tend to be narrow in scope and coverage, with trivial economic impact. To the extent that bilateral or regional agreements include trade facilitating measures, progress in reducing trade costs by improved customs operation and so forth tends to benefit all trades and in practice is non-discriminatory. To the extent that they simplify foreign investment procedures and intra-firm trade, they may start as bilateral but are likely to proliferate until multilateral…

A negative economic consequence of using RTAs for political ends is the lack of transparency about which rules actually apply; even when RTAs are implemented many traders continue to trade on an MFN basis rather than invoking bilateral agreements, e.g. less than 15% of Singapore’s trade with preferred partners is conducted under the terms of bilateral agreements…

In sum, the recent East Asian regional agreements are less threatening to the world trade system than they may appear. They do not threaten the MFN tariff structure in a meaningful way, and if they can promote trade facilitation this will likely benefit Asia-traders from all countries. The major threat is political rather than economic…

Do read the full article.

Richard Pomfret has a great article in this month’s edition of The World Economy discussing how to think about the prevalence of preferential trade:

The main problem with using counts of RTAs as measures of the increasing importance of regionalism is that, while some agreements are important, many RTAs are inconsequential. Clearly, all notified RTAs should not carry equal weight…

The numbers are inflated because RTAs which cover both trade in goods and trade in services (Australia-Thailand, Japan-Mexico and Panama-El Salvador) require MFN waivers under both GATT and GATS; such double-counting only occurs after 1995 when the GATS came into effect, which biases comparison of the numbers notified before and after the establishment of the WTO…

Counting RTAs is not just a poor measure of the extent of regionalism; it can lead to nonsensical conclusions about trends in the global economy due to the treatment of regional disintegration and integration. The replacement of a regional bloc by a web of bilateral or plurilateral agreements increases the number of RTAs, and by the counting criterion indicates an increase in regionalism. Conversely, the replacement of a network of minor RTAs by a single RTA can be interpreted as a decline in regionalism…

The main reason for the rapid increase in the number of RTAs during the 1990s was the proliferation of bilateral and plurilateral free trade agreements among countries of the former Council for Mutual Economic Assistance and among successor states to Yugoslavia, the USSR and Czechoslovakia… In sum, the increased number of RTAs in the 1990s and early 2000s was largely driven by a decline in regionalism and shift towards multilateralism on the part of two dozen formerly centrally planned economies…

Despite the increased attention being paid to regional arrangements, the hold of multilateralism is stronger than ever as practically all trading nations have now acceded to the WTO, with lower trade barriers and stronger trade dispute settlement procedures than ever before. Perceptions of WTO enfeeblement reflect a tendency of news reporting to highlight conflict rather than accord.

Full article (Blackwell Synergy journal access required).

Thomas Palley argues that we ought to let TPA lapse:

Over the last two decades the power of corporations has increased dramatically while that of labor has fallen. That power shift is reflected in the increased numbers of Washington K Street lobbyists working on behalf of corporations, which has increased corporate influence over policy and legislation. TPA plays into and amplifies this power shift.

Trade deals are negotiated by the office of the US Trade Representative (USTR), and then sent to Congress for approval. This negotiating process is stacked in favor of business…

Bad agreements pass because the political costs of voting them down on account of specific problems are perceived as too high. Moreover, TPA provides individual congressmen with political cover, enabling them to retain favor with corporate sponsors without having to explain to constituents their lack of action.

Palley’s analysis of the political economy of TPA for PTAs is compelling, though I’m confident that we disagree about which elements of PTAs have been undesirable. See Bernard Gordon on the Christmas tree effect for more thoughts on the Congressional role in PTA formulation.

Plenty of chatter about PTAs:

Japan Times: Prime Minister Shinzo Abe and U.S. President George W. Bush are likely to discuss making a bilateral free-trade agreement the subject of future negotiations when they meet next week.

Yonhap: South Korea and the European Union will start discussions in early May on forging a free trade agreement.

These announcements are support for those who argued that the Korea-US PTA would galvanize more trade talks, but, as I commented earlier, talk is cheap.